Home Buyers Need to Get Over It

At some point, we can’t blame sellers for everything that troubles the housing market. It’s time to give buyers a wake-up call – and tell them that whatever’s holding them back, it’s time to get over it!

It’s fashionable to point out how home sellers are unrealistic – in this, or any market. Traditional real estate lore contains countless stories of sellers who think their home is “special,” not subject to market forces that sometimes sweep away equity and exceptionalism. Many such stories may be true, but to the extent that today’s buyers are still hesitating, even smart sellers have to scratch their heads.

Which is why smart REALTORS need to to kick their buyers in the butts.

In case anybody hadn’t noticed, now is probably the best time to buy a home since the invention of wood. Mortgage rates at historic lows, home prices reset back almost a decade, and a weak economy pushing down the costs of buying (moving, inspecting, repairing, etc). It’s simply the perfect example of a classic “low” in a commodity market. Yet even in stable neighborhoods, where prices never soared and likewise didn’t plummet, buyers are waiting.

Why?

Many buyers today will tell you they’re waiting because they’re afraid their purchase will lose value in a few months or a year. The trouble is that most REALTORS have been trained to handle this objection by talking about how great a long term investment buying a home is, or what a smart savings vehicle it represents, or some other such investment speak, when what they really should say is:

So what? It’s not like you haven’t shown you’re willing to buy other things that have lost value, right?

Oh.

What today’s buyers need is a dose of realism. Almost everything they have ever bought has lost its initial value.Fancy new car? Loses thousands the second you drive it off the lot. Super new smartphone? Put it on Ebay in two months and see what it fetches. Designer clothing? Worth nothing at the yard sale.

Buyers are surrounded by their everyday purchases that have lost their initial value; they still bought them and they got over it.

The real estate industry has caught itself in a trap of its own makings. After telling people for decades that housing was a great investment – the jury is now out on that in consumer’s minds. Today’s buyers are trapped in a thought process that is causing them to hesitate: What if today’s purchase isn’t worth “more” at some point in the future? Even if homes still are a good financial investment by certain spreadsheet calculations of future points in time, what matters today is that Gen X and Gen Y consumers simply don’tbelieveit. They are hesitating because they can’t predict the future.

But maybe we can get them to act by pointing to what they have done in the past.

Most buyers have never cared about how much money they lost on past purchases; they bought the car, computer, vacation anyway. That’s why it’s high-time real estate agents started telling buyers to get over it. So what if it’s possible the home will be worth less if measured a year from now? Most buyers won’t be flipping it within a year. It’s a fictional problem! No real loss will occur. Their down-payment equity (if any) will be trapped anyway, because no bank is going to let them pull it out ATM-style ever again.

It’s housing; live in it, pay for it, get over it.

REALTORS better disabuse buyers of this non-problem soon, too. If market conditions change, it’s not going to be for the better any time soon (can you say unemployment, inflation, flat income gains?). Agents can help their buyers move forward in two ways: First, stop talking to them in investment speak, about prices in a future you cannot possibly predict. Second, gently point towards their buyer’s car, shoes, smartphone and kid’s’ college education: Remind them that they were perfectly happy losing money on those purchases.

I think part of the reason buyers are so hesitant is not because of the possibility of losing money, but the possibility of losing a SIGNIFICANT amount of money. A $200 loss on a phone is much different than a $20,000 loss in the value of the house.

However, you do make a good point, and in the long run, it is probably the best time to be a buyer in the market, because of the low costs of everything you mentioned. Just like it is in the consumers hands to bring the economy up by not being scared to spend, the same goes for buyers in the real estate market. Even if the value decreases a little next year, there will always be fluctuations in the market. The economy is always alternating between a bull and bear market, and eventually the market will get better and in the long run will be a better investment if made now.

John, I think we agree! Consider this: even if they lose $20k in the next twelve months – it's not REALLY lost. Here are two reasons. One – they aren't going to be selling at that time, so it's a paper loss, not a realized one; and two, if real estate is truly near a historic bottom, they might lose a little more, but how much are they (supposedly) going to gain if they sit in in for 5 years? or 10? And while Gen Y might not be ready for that kind of timespan, Gen X and Boomers whose kids are looking for the “school age” community commitment are definitely going to see that as a possibility.

Either way, they have taken a loss; and percentage wise, $200 on a smartphone is a 50-80% loss within months! So what's 10% in housing… ? GRIN!

Art Hillman, CRS

I try to explain that prices may continue to drop for a while, but the only way to make sure prices are no longer dropping is to watch the market very closely, after prices have gone up for six months in a row the buyers can truly say, “Yes, prices are no longer falling, we should have bought back there, six months ago! Damn, we missed it.” Some time this helps.

I agree, all you hear right now from most agents is that “buyers are hesitant” Yes, they are, and if you do not treat real estate as an “investment vehicle” then it does not matter when you buy… interest rates high or low.. shelter is a necessity and the “boom years” have warped buyers perceptions of home ownership. Yes, over long periods of time, real estate has proved to be a great asset. But the rules have changed somewhat. So if you are TRULY in the market to buy, it is time to JUMP from a tall building, as the rates will go up.

Bob McTague, Coldwell Banker

I agree, all you hear right now from most agents is that “buyers are hesitant” Yes, they are, and if you do not treat real estate as an “investment vehicle” then it does not matter when you buy… interest rates high or low.. shelter is a necessity and the “boom years” have warped buyers perceptions of home ownership. Yes, over long periods of time, real estate has proved to be a great asset. But the rules have changed somewhat. So if you are TRULY in the market to buy, it is time to JUMP from a tall building, as the rates will go up.

I love this posting and wrote a blog with a link to this posting. The other thing that needs to happen is that the Sellers who do not NEED to sell should consider coming off of the market. I’m talking about the ones that are “testing the market” what’s to test? Get off!

I have contended that if you are not on the market, don’t need to sell or are currently needing to refinance then shut up about what you have “lost” that is like looking at your 401K everyday & freaking it’s up…it’s down…the sky is falling in. You said this very well. Thank you

Well said! I think John (below) is correct in that there’s a possibility of losing a significant amount more than on technology, or a new car, however there is so very little inventory for us to sell right now (I’m in Marin County, California) that we need to start getting buyers to re-frame their “potential loss”–how much will they “lose” in value if the homes start increasing in value and they lose purchase power because of higher interest rates?

Ryan Olson

I’ve lost (& made) money in my retirement account too, but that doesn’t cause me to stop contributing (aka buying) to it. Like homeownership, it’s a long haul thing. However, it’s a little harder trying to live in a tax ‘shelter’.